Crisis in Domestic Auto Sector open the window of AOD

Write : 2017-09-03


The domestic auto sector is believed to be facing a crisis, pressed by lackluster exports, production and domestic demand.
The three areas have been on a decline for the second year as of this year's first half.
Some 1.3 million South Korean cars were exported in the first half, the lowest in 8 years.
In particular, sales in China, which continues its retaliation against Seoul's THAAD deployment, have dropped 40 percent from a year ago.
Exports of auto parts are also down 5.8 percent year-on-year, while the plant operation rate of carmakers has also edged down from 96 percent in 2014 to 93 percent this year.
Korea's status in the global market is also suffering.
The country's auto production fell seven percent from 2015 and ranks sixth in the world. This year, South Korea may well be outpaced by seventh placed Mexico.
Korea has also been the third largest exporters of cars in the world for over a decade, behind only Germany and Japan. Mexico has already taken over Korea in exports this year.
The crisis stems from the global recession as well as China's retaliation over Korea's deployment of the THAAD missile defense system. A Hyundai Motor plant in China has even halted its operations.
A more fundamental issue is that Korea has no clear competitive edge in any area of price, quality or product. Carmakers are not keeping abreast with consumer demand for quality vehicles.
Rival firms are advancing into eco-friendly electric cars, while in Korea, R&D investment is insufficient while regulations are stiff and labor strife frequent.
Labor cost is also believed to be a factor worsening the crisis. Korea is world number one in terms of labor cost in proportion to auto sales.
Additionally, a new court ruling is expected to further raise the labor cost burden.
A Seoul court has recognized regular bonuses and lunch expenses as part of "ordinary wages" and ordered Kia Motors to pay its employees more than 422 billion won in back wages.
The ruling is expected to have great repercussions not only on Kia but also across the entire industry.
For the auto sector to overcome the challenging environment, experts call for combined endeavors of government deregulation, industrial competitiveness, as well as efforts by the labor unions.

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